Question

Sheridan Communication Corp. is investing $9,984,700 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $1,940,000 $5,012,000 $3,956,100 $1,524,500 What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0 for the answer.)

Answer 1

Discounted Payback period is the period in which initial investment is recovered after considering the time value of money.

Year	Opening Bal	CF	PVF @10%	Disc CF	Clsoing Bal
1	$ 99,84,700.00	$ 19,40,000.00	0.9091	$ 17,63,636.36	$ 82,21,063.64
2	$ 82,21,063.64	$ 50,12,000.00	0.8264	$ 41,42,148.76	$ 40,78,914.88
3	$ 40,78,914.88	$ 39,56,100.00	0.7513	$ 29,72,276.48	$ 11,06,638.39
4	$ 11,06,638.39	$ 15,24,500.00	0.6830	$ 10,41,254.01	$        65,384.38
5	$        65,384.38	$ 15,24,500.00	0.6209	$   9,46,594.56	$   -8,81,210.18
6	$   -8,81,210.18	$ 15,24,500.00	0.5645	$   8,60,540.51	$ -17,41,750.68
7	$ -17,41,750.68	$ 15,24,500.00	0.5132	$   7,82,309.55	$ -25,24,060.24

Discount Payback period = year in which least +ve Closing Bal + [ Closing bal at that Year / Disc CF in Next year ]

= 4 + [ 65,384.38 / 946,594.56 ]

= 4 + 0.07

= 4.07 Years